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00:12
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Hello and welcome. |
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00:12
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You're watching InMarket Insights, brought to you by Standard Bank Corporate and Investment Banking. I'm Godfrey Mutizwa. |
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00:19
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US President in his first month in office, in his second term, has upended the global order in place since the end of the Second World War in ways few could have foreseen, bringing risk and opportunity in equal measure. |
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00:33
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His America First trade policy has targeted traditional allies Canada and Mexico, as well as perennial foe China in the first round of tariffs he has promised he will impose on every country in the world. |
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00:46
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In turn, the three countries have promised retaliation, as have other economies, including the European Union. |
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00:53
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In foreign policy, President Trump appears to be preparing the ground for the global reintegration of Russia, largely shunned by the west and other countries since its invasion of Ukraine, pushing the European Union into its largest rearmament in decades. |
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01:12
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So what does that mean for the globe? What does it mean for Africa and South Africa? |
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01:16
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In the studio with me, I have Goolam Ballim, Chief Economist, Standard Bank Group. |
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01:20
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Goolam, welcome. |
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01:21
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Thank you for having me. |
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01:23
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I'm reminded of the song Wrecking Ball by Miley Cyrus where she talks about this thing that has come and shattered what—you couldn't call it calm, but certainly there was some kind of order. |
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01:35
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When you look at the slew of policies and executive orders that President Trump has pronounced since he came back into office, do you discern some kind of order emerging out of that and perhaps an endgame? |
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01:50
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Godfrey, I suspect the world would say Miley Cyrus was far more charming than Donald Trump. He certainly is, as you suggested, upending the world. But having said that, there has been several trends in play for several years now. |
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02:05
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I think we've appreciated that we're entering an entirely new epoch, an era where we're shifting from the type of benign multilateralism that pervaded the last 30 years to a multilateralism that is contentious. |
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02:21
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Who would have thought that we see war on continental Europe or an inflamed Middle East? But I think what we do know is that we seem to be trending towards the end of American empire. And you could believe that this is an attempt to resurrect America's hegemony in an environment that is now, for certain, more multipolar. |
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02:42
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So how do you explain, Goolam, what has been happening internally inside the US through Elon Musk and his DOGE department? How does that fit into the picture you just painted? |
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02:53
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Godfrey, in various places around the world, economic hardship has been in the ascendancy. And because of socio economic difficulties, we see the emergence of populist leaders, leaders who promise citizens much prosperity, but not necessarily with sound economic policies. |
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03:15
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The reality is that over the last three years, across the world, in about 33 elections, you've had incumbents lose power and often in their first term. Again, just reinforcing this notion that in the trenches, amongst the masses, there is a high degree of uneasiness, a sense of economic strain. |
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03:36
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And populist leaders are harnessing this and emerging with solutions, seemingly, and coming to power. And at least in the United States, as you suggested, a wrecking ball type of approach, some would argue. |
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03:51
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But at the same time, I think Donald Trump is attempting to, very rationally, resurrect American industry and to harness American strengths to preserve its historical dominance. |
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04:04
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Let me jump onto the tariffs, because I think they are the most visible of what he has been doing, though one could argue we've all been watching as well the drama that's been taking place in Washington. |
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04:13
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I want to talk a little bit about the targeting of, as I said at the beginning, friends and foes in almost equal measure. What is the end game there? |
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04:22
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It is disturbing that the transatlantic alliance that has been in play for at least seven decades, almost eight decades, seems to be upended. Donald Trump is targeting his very near neighbours, which are substantial trade partners to the United States. And of course, China, long considered ascending and a foe to America's dominance. |
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04:46
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So in some respects, America is a very substantial consumer market, a market that many have exported to, helping to live their respective fortunes. And Donald Trump sees this trade war as an attempt to relocate incomes that Americans have been exporting to other nations back to his soil. |
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05:09
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The difficulty with this approach is that it may yield near-term gains where firms domiciled in the United States or even foreign firms looking to participate in the American consumer market, will invest in the United States, bolstering its output, bolstering its investment climate. |
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05:28
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But that said, over the long term, given this very fractious nature of international relations pursued by Donald Trump, we suspect that it is only going to detach the United States from the rest of the world. |
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05:43
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I know that sounds a little bit dramatic, but the type of policies that Donald Trump is pursuing is a form of Brexit, and over time, America will be smaller for it. Indicatively, I will just say, we're in a world where eight of the world's ten fastest growing trade corridors now exclude the United States. |
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06:04
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So I saw the other day someone writing and saying that he may well be making all the noises that he's making in the world, but in essence, he is dancing to China's tune. This is China's world. Is that an assertion that you would agree with? Is China going to be the biggest winner here? |
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06:20
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Over time, China will continue to grow and expand its output, and China will certainly be a behemoth, particularly within the Global South. |
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06:30
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One must not discount that the United States is still an economy to be admired. Over the last five years, no other nation has generated as much output as the United States. In fact, the United States' total contribution to world production in the last five years is almost double that of China. And it speaks to America's existing heft. |
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06:54
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Over and above that, in terms of skills, innovation, and simply deep and liquid markets, and especially the activities of venture capital markets, it has meant that the United States is pretty much a frontier economy in terms of the technological arena. |
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07:11
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So we cannot dismiss the United States lightly. It is a nation that other nations must still seek to engage with. And if it means concessions have to be made and to continue to be able to participate in somewhat of a globalised world, I think that would be an optimal outcome. |
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07:31
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Is the era then of US exceptionalism which we have been calling for a few years—I mean, you've seen the birth of those tech titans in the US—would you reckon we could pronounce the end of that era over? |
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07:44
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I think what we must accept that it is a multilateral world. |
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07:48
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Right? |
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07:48
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There are many more voices in the world. And America's share of global output has been shrinking for at least two decades. And even though there may be a burst of resilience over the near term, over time, the Global South will continue to cannibalise the Western Hemisphere's historical dominance. |
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08:09
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So I think we have to find and enter into a new world order, a world order that has some level of rules, where multilateralism is still savoured. |
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08:20
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And if it turns out—and would have imagined that the Global South is seeing it courted by the Global North—so Europe throwing its arms around the Global South, as a result, out of necessity, in the sense that, as I suggested earlier, transatlantic ties are being frayed and the rest of the world needs to find some semblance of guardrails with which to set the global economy astraight. |
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08:47
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You stepped into my next question, which was going to be: who are the winners, and who are the losers in here? In part, you're suggesting that there's going to be a redistribution, if you like, of economic power. Who wins here? |
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08:57
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I was reading earlier in the day, and someone was talking about the re-emergence of Germany as a scary thought. |
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09:06
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So in terms of winners and losers, even when the world was globalising, there were certainly winners and there were losers. And many felt that they were not as integrated into the global economy and did not quite have the comparative advantages to be able to deliver prosperity. |
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09:22
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And of course, globalisation was perhaps most prominent for China in the sense that it emerged over this time, lifting 900 million people out of poverty in just the last 30 years or so. |
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09:33
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But, henceforth, the idea of who are winners and who are losers is a little bit less clear. I think the first thing we can say, over the near term, global growth is going to be somewhat sacrificed. This policy uncertainty, and particularly trade uncertainty, will sap some of the animal spirits. |
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09:52
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Secondly, to the extent that, as you suggested, Europe is going to rearm, that basically means that capital that would otherwise be going to, say, utility infrastructure that is more benign for growth is now going to be directed to wartime preparation, for instance. |
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10:10
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Historically, it is what economists refer to as a choice between butter and guns. Butter is a good investment, in a sense, that it has long-term positive multiplier effect. Guns refers to wartime investment, which typically delivers lower productivity and growth over time. |
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10:28
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So this reset in the world where capital is now increasingly being allocated to defence, will somewhat subtract from the type of trend growth that we've been familiar with over the last 20 years. So that's the first, let's call it, as you suggested, where do we see loss? |
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10:45
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I think secondly, as I've suggested, the US may enjoy some level of burst over the near term, but over time the global south, along with partners in the north that extend trade treaties and just create generally more hyperactive international relationships, will see their trade activity burgeon. |
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11:10
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And I suspect there is where we'll find winners. |
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11:13
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Yeah, you haven't mentioned Africa. Where do we fit in this? |
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11:18
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So Africa, firstly, has got a bunch of idiosyncratic forces that is likely to see growth trend to between 4 and 4.5% over the next three to four years. |
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11:28
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So that's incredibly favourable to the extent that it suggests that some organic impetus for economic growth. But of course, Africa has increasingly liberalised over the last two to three decades, wants to be more integrated into the world, and the trade frictions, the policy uncertainty, is therefore a menace. |
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11:51
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But that said, I would argue the more near- to medium-term fissure is if the trade wars do dent Chinese growth and in turn weigh on the commodity cycle, that will be a hammer blow for many African markets. |
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12:07
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So the commodities channel is a very significant umbilical cord into the rest of the world, with China, of course, a significant player in terms of being the marginal price setter for global commodities. |
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12:21
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So we will watch to see whether China is able to maintain resilience and whether in, like Trump's first term, he's able to find some level of conciliation with China, some level of settlement so that we don't see full-fledged continuation and a meaningful trade war. |
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12:41
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Yeah, I want us to talk about AGOA, but before we do so, I wanted to know if you think there is something that we as the continent can do. I.e., that is, we don't just wait for these other larger actors to do what they do. We also come in with initiatives of our own. |
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13:00
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So firstly, the idea that Africa continues to strengthen ties with historical trade partners outside of the United States, and I think that's not novel to the extent that, in fact, the United States' share of African trade has been shrinking over the last two decades. In fact, for most markets, the United States occupies less than 10% of their respective exports. |
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13:25
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Europe is meaningful. If we just take South Africa, for example, Europe accounts for about slightly more than 20% of South Africa's total trade. And in fact, South Africa trading on the rest of the continent is about three times South Africa's trade with the United States. |
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13:42
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So continental trade certainly is an opportunity. But continuing to establish relationships with, let's say less, more novel partners like the Far East, strengthening relationships with Europe, but also enhancing the, let's say fledgling relationships with the Middle East, provides a hedgehog against fissures with the United States. |
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14:06
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Do we have, do you think, a structured approach to this as a continent? I.e., I'm asking the question, is the AU the instrument with which we try to implement the things that you are talking about, or do we need to rethink that one? |
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14:22
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Godfrey, so I would argue there are structures, and you're right, these institutions, such as the African Union, the broad contours of the WTO, trade relationships with Europe, either bilaterally or multilateral agreements, speaks to the corridors that we can still harness in terms of buttressing existing commercial relationships. But also with respect to order. |
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14:49
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Of course, the United States is fundamental to the extent that it shapes our trading partners, Africa's trading partners' engagements and choices with regard to, as we've seen, aid, also investment flows, public sector capital flows, and we're going to have to feel our way in 2025 with respect to exactly what new and novel consequential public policy choices the world is making and how we fit into that. |
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15:17
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I will just also say the fact that South Africa is hosting the G20, it comes at a time when you could argue South Africa did not quite anticipate this breadth mandate. In other words, the way in the immediate aftermath of the Second World War, the world had to find a path to prosperity, and the reconstruction of Europe was critical in that respect. |
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15:41
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We could also argue, for example, GATT, the General Agreement on Tariffs and Trade; then subsequently the WTO; the fall of the Berlin Wall; the Maastricht Treaty. These are all very significant points in history. |
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15:54
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And in 2025, South Africa's leadership of the G20 can in fact help to generate, let's call it a South Africa consensus, maybe even a Johannesburg consensus when the leaders meet in November, that basically says, in a world where the United States is fraying ties, what are the new contours and the new rules of this international relationship forged in South Africa on the bedrock of the G20? |
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16:24
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Which brings us to AGOA. Given the way President Trump has approached—let's look at the Ukraine example, for instance—do you see AGOA subsisting in its current form, or do you see the United States coming individually to us and saying, I want in the DRC all those minerals, and this is my deal? |
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16:43
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It does seem a little surreal that so fresh into Donald Trump's tenure, his second term, that he has parcelled South Africa with Canada, Mexico and China. In other words, this little country at the tip of Africa is in his crosshairs as well. Without speculating as to why, but with respect to AGOA, I think it would be responsible for South Africa to prepare for the severing of AGOA. |
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17:12
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Not Africa. |
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17:12
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Exactly. |
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17:13
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Not Africa. |
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17:13
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Not Africa. |
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17:14
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I don't necessarily think that AGOA will be compromised with regard to other nations, particularly the lesser-developed countries, but certainly a more middle-income state to South Africa can certainly be at peril. |
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17:28
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Now, of course, AGOA matters. It has helped to generate jobs and certainly nurse the farming as well as the automotive industry. But overarchingly, we think that if we were to see South Africa's AGOA relationship with the United States forsaken, it'll probably compromise about 0.1 of a percentage point of growth. |
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17:50
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Now that's not to diminish its impact because certainly it's unhelpful when growth in South Africa is so tepid, but it is not going to be manifestly damaging. |
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18:00
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I think what I should just say, AGOA allows duty-free entry of certain items into the United States. It doesn't mean that South Africa will be precluded entirely from exporting to the United States. Just certain products will now come at a higher price. So of course that's stating the obvious, perhaps. |
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18:20
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But in that respect, it also helps to articulate that the risk will not be as severe in terms of dent to the economy but certainly unwelcome when we're trying to generate growth from a weak level. |
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18:32
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So you're suggesting that the biggest casualty could well be South Africa here and that there could well be a good relationship, let me put it that way, if anything is possible like that, with the President of the US with the rest of the continent. |
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18:47
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So as I've suggested, for some reason South Africa seems to be in the crosshairs so much more substantially alongside, as I've said, China, Canada and Mexico. But my sense is AGOA is framed around the support for lesser-developed countries, particularly in the continent. |
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19:05
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And AGOA had historically been a unilateral agreement. In other words, America conferring on African countries the ability to export into the United States duty-free without reciprocity, without African countries necessarily having to open their markets for United States shipments onto the continent. |
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19:26
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And so in that respect, you could argue it provided favour. And of course, lesser-developed countries have harnessed that opportunity. And my sense is that judging from the comments out of certain congressmen, it is not Africa entirely that is at risk, but South Africa particularly. |
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19:45
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It may also be a function of South Africa's foreign policy with respect to Iran, Russia, and some have even suggested the ICJ case may have irked some United States Congressmen. And in some respect that has played into the United States' choice to single out South Africa within the African context. |
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20:05
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Absolutely. The other point many people have been making is that with the approach that we're seeing coming out of the US on stuff like development aid and engagement with the rest of the world, the question is being asked. |
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20:17
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We've been talking about climate change and funding for climate change. We know South Africa has got its big Just Energy Transition programme. Are those at risk across the continent, or again, could this well be contained to South Africa in your view? |
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20:30
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With respect to climate change, it does appear that in 2025 we're entering an episode of meaningful setback, just indicatively. With the United States engaged in the Paris Accord, it would effectively mean that 89% of the world, when measured by greenhouse gas emissions, is engaged in the Paris process of attempting to remedy climate change, lower greenhouse gas emissions. |
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20:58
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So with the United States' withdrawal, it certainly is a hammer blow. We've also seen, for example, firms both in the United States and in continental Europe begin to roll back on targets and also transparency with regard to their endeavours to lower their carbon footprint. So this is quite worrisome. |
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21:19
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It's quite worrisome because, if anything, we've seen increasing incidence of climatic whiplash where, more frequently, and more severe shifts between exceedingly wet and exceedingly dry conditions. And of course that's causing enormous socioeconomic harm and dent to GDP. |
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21:39
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And, for example, Africa is probably least prepared in terms of being able to adapt or simply resist the type of climate change effects that is bedeviling markets. |
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21:51
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So what do we do? Do we jump into the arms of China? Do we go to the Europeans and say, Yeah guys, we know that you are in a, shall we call it, an existential fight to try to survive without the United States' backing? What do we do as a continent? |
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22:06
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Godfrey, it does feel like the revenge of geopolitics. It also feels like the world needs to revisit multilateralism. I don't think it should be a case of either/or. |
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22:18
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I think it's going to require a far more adept and sophisticated level of international engagement—international relations. As I suggested at the outset, attempts to continue to partner and maintain accords with the United States should be topical, and it should be foremost with respect to foreign policy. |
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22:41
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I think a multilateral approach where we appreciate we can have multiple partners and a sophisticated level of neutrality is probably what is going to generate the most success for respective nations. |
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22:54
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But I think this idea of wanting to fall into a new cold war, perhaps precipitated by the United States' actions, needs to be avoided. |
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23:06
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Mr Trump appears to be transactional, and he will seek to transact where the United States gets the better end of many of the transactions and deals which he seems to be nudging. However, I fear that over the medium and long term, some of his early initiatives may flounder. And I think from a foreign policy perspective, nations need to think long term. |
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23:33
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They need to think about the best interest of the global economy, because the global economy, in turn, will serve prosperity everywhere far more better, as the last 30 years have shown on a net basis. |
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23:45
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Absolutely. Which brings me to a point that you raised earlier around growth on the continent. You referred to a healthy pace, it would appear, even though we are entering these very troubled times. But the burden of that growth, if I may put it that way, has been coming from the East for quite a long time. |
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24:01
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When you look around the continent, do you see the potential for a rejig, if you like, of that growth picture with perhaps regions that have been lagging beginning to contribute more? I'm looking at Southern Africa. |
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24:13
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South Africa appears to be, perhaps in terms of economic activity, picking up a little bit. |
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24:19
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Godfrey, if we were to cast our buying back, say to the beginning of the century, in the early 2000s, West Africa was performing very handsomely. We had, at times, double-digit growth in Nigeria, but certainly high single-digit growth and the same for Angola. In other words, West Africa and the oil economies in particular performed well. |
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24:37
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There's been a switch, and now East Africa has shown itself to be pretty strong and resilient. And I suspect that over the near to medium term, the diversification benefits, the stronger integration of economies and also in East Africa, combined with elevated levels of focus on infrastructure spending, those will continue to serve as bedrock or foundational for East African growth. |
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25:06
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So I would argue that from Ethiopia through East Africa on the cusp of Mozambique, given Mozambique's current travails, that will continue to be an area of performance. |
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25:17
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I think we must celebrate that even though the Nigerian economy and particularly Angola have been mired for a length of time, for several years now, both seem to be showing some semblance of recovery. |
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25:29
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And for Nigeria, for example, as opposed to 1 to 3% growth that has been its corridor in recent years, quite plausibly 3 to 5%, if they continue to nurse the reform initiatives that have been underway is plausible. |
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25:44
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Yeah. Before I leave the continent, one more question. |
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25:48
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The African Continental Free Trade Area; we've been talking about it for quite some time. It's been operational for a few years now. Early days, yes, I agree. But when do we begin to see that kicker coming in? Is it on the horizon? |
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26:00
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I think the ambition with regard to trade on the continent should be more regional. In other words, geography matters. |
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26:07
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So if we continue to see strengthening trade relationships in East Africa, Southern Africa and Southern Africa building bridges, for example, with East Africa, the West African region, continuing to build trade corridors and infrastructure investment that cements city-to-city corridors and economic opportunities, I think that should be, in a sense, the first ambition. |
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26:32
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And we should perhaps lower the ambition of a broader African silhouette of integration. That is likely to yield more sustainable and more substantial outcomes. |
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26:43
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So regionalism and a buttressing of legal trade and increasingly commercial activity, in other words, private sector-driven activity amongst these nations, will help to buoy intra-Africa trade. |
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26:59
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Let's come to South Africa. Earlier I referred to economic activity picking up. |
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27:03
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The other day I listened to one economist upgrading very slightly their economic forecast for South Africa. I don't know if you have been looking at your numbers lately. They were talking about more 1.9% in 2025. We know the Government of National Unity has been targeting 3% in the short to medium term. |
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27:22
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Talk a little bit in general about the economic picture that is emerging out of South Africa even as we face these very, very strong external headwinds. |
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27:32
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For at least a decade now, the political climate has been South Africa's most bedevilling concern, and the Government of National Unity has provided a reprieve. In fact, South Africa seems to be experiencing a very meaningful mood lift. |
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27:46
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So if we were able to harness the Government of National Unity as a more democratic policy-making forum and it is able to harness the business climate in terms of elevating animal spirits and therefore increasing the prospects of investment by the private sector, then I would argue we're probably going to see an acceleration in growth over the forthcoming years. |
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28:16
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So the building blocks is, quite simply: we need a stable, predictable and political climate that celebrates the private sector. Over and above that, reforms with regard to state-owned institutions which have already been in play, and we're seeing quite healthy progress in that respect. |
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28:34
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Thirdly, crowding in the private sector with respect to the historical provision of public goods. And then ultimately the private sector needs to be confident that, premised on that elevated consumption profile, they'll then begin to invest in productive capacity, which then has the making of a potential virtuous cycle. |
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28:57
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So that mood lift that you referred to was recently disturbed by the inability of the government to pass a budget for the first time since 1994. Some people have suggested that that was a good thing, showing an effective working government where there's contestation of ideas, honestly, robustly, what's been your take on that? |
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29:18
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To what extent do you see that being or continuing the mood lift that you referred to earlier? |
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29:25
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So I would concur in the sense that the developments surrounding the budget could consolidate and solidify the government of national unity in terms of its processes. It is the first time that the ANC has required another party to be able to pass a budget. So it wasn't a mere formality. |
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29:42
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And to the extent that alternative views, alternative ideologies have had to be imbibed into the budget process, I think is healthy, and prospectively the capacity for negotiation and conciliation on very critical themes is more likely than not. |
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30:02
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So an accident it may have been. It may have been somewhat embarrassing as well. Unprecedented, as some would say. But I think we're likely to be richer for it. |
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30:11
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Does it weaken the Minister of Finance's position? |
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30:14
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I don't think it weakens his position, but if anything, I think it is going to require him and make him more aware of the necessity for conciliation, for the capacity to appreciate that some very substantial, and a 2% VAT hike does smack of panic, that you cannot just simply impose this on society and not expect resistance. |
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30:37
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And more substantially and perhaps a little bit more narrowly, the idea that this could nudge the budget process to more meaningfully appraise the expenditure side of the budget, rather than just simply, as is historically being the case, relying on tax policy to balance imbalances, I think is also constructive. |
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30:58
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So as I've suggested, this could be an overarchingly constructive outcome. |
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31:02
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I want to look ahead. But before I do so, I want to, one quick question on the consumer. |
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31:06
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We know that the consumer has been under pressure. We know there's been a little bit of relief that's been coming through from last year when there was that cutting cycle, inflation a little bit trending lower, but those seeming to be hanging around near that midpoint. |
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31:20
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Let's talk a little bit about how healthy that consumer is and the ability of that consumer to bear if that 2 percentage point increase in VAT had been imposed. |
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31:29
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So it's not quite nirvana for consumer fundamentals. But that said, the combination of low inflation at around 3%, which is incredibly benign, interest rates that have been trimmed and may prospectively be cut again, real wages that, in fact, may expand fairly notably with inflation as low as it is, all of these things are assembling to create, let's say, improved consumer fundamentals in 2025 and through 2026, very likely. |
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32:02
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So as a consequence, the consumer body in South Africa, which accounts for about 62% of GDP, will be an elixir. It will be a source of economic thrust through the ensuing quarters. |
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32:15
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Absolutely. |
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32:16
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Two quick questions on politics. One, I'm asking you here to do a very difficult thing: to look into the future and paint a picture. I want to know from you what you think a Government of National Unity, post those local government municipal elections, is going to look like. |
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32:31
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I suspect that the Government of National Unity will endure till 2027. In other words, when the ANC has its elections, party elections. There is some concern surrounding whether there will be continuity after that. |
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32:47
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And quite frankly, it will be the decision of the leaders that emerge in 2027 at the ANC's elective conference who will have to decide whether the Government of National Unity remains the vehicle in which they wish to pursue their ambitions of participating in government and governance. And that is a significant timeline as well as a milestone moment. |
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33:14
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At this stage, I think it's premature to exactly suggest who is going to succeed President Ramaphosa. But it is a very critical question, and some investors are in fact still showing some hesitancy despite the improved political climate because over the medium to long term, they're unsure whether there will be the type of reform continuity that President Ramaphosa has engendered. |
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33:38
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Which is the second part of my question, because I wanted you to look into the darkness around the people who are working very hard, I would imagine, during the night and trying to position themselves, whether you see any figures that would be able to carry out the reforms that he has implemented. |
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33:52
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So I would argue there are probably a handful of names that have surfaced that could ascend to the helm of the ANC and potentially the helm of the government if the type of configuration with respect to the national unity government prevails. |
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34:08
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I don't want to speculate on particular names, but I think the possibility that we get a leader that continues the reform agenda remains plausible. I would just, for example, and maybe for novelty, suggest the police minister, Senzo Mchunu. He is a candidate that I think could emerge as an inspired personality who could be a contender. |
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34:36
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Absolutely. |
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34:37
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Goolam Ballim, Chief Economist, Standard Bank Group, thank you. |
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34:40
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Thank you for having me, Godfrey. |
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34:41
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You've been watching InMarket Insights brought to you by Standard Bank Corporate and Investment Banking. |
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34:46
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Until next time, goodbye. |
